Planning and Decision Making: Out of Sync?

The annual planning process clashes with the way executives make their most important strategy decisions, according to a new survey.Dave Cook, CFO.com | USDecember 29, 2005

Companies that develop their strategy continuously average more than twice as many major business decisions each year as do companies that go through the familiar annual planning process.

That's one major finding of a new survey of 156 senior executives at companies worldwide with sales of at least $1 billion. The survey was conducted by management consulting firm Marakon Associates in collaboration with the Economist Intelligence Unit (a sister organization of CFO.com).

According to Marakon, companies that went through the traditional planning process — once a year, usually before budget time, business unit by business unit — made an average of 2.5 major business decisions per year. (For purposes of the survey, "major" was defined as having the potential to raise earnings by at least 10 percent.) By contrast, companies that developed their strategy continuously and that focused on issues rather than business units averaged 6.1 such decisions per year.

Probing deeper, the survey revealed that although 66 percent of respondents conduct strategic planning periodically — usually, that is, on the traditional annual cycle — fully 100 percent said they make strategic decisions continuously. And while 67 percent said that planning at their companies was conducted business unit by business unit (or, perhaps, by clusters of units), 70 percent of respondents said they make their decisions issue by issue — across business-unit lines, as need be.

Marakon's Michael Mankins and Richard Steele, who oversaw the research, identified a number of companies that have set aside the traditional planning model and adopted a continuous, issues-driven process. They include Boeing, Microsoft, Diageo, Textron, Cardinal Health, and Cadbury Schweppes.

Other major findings:

• Just 11 percent of respondents believe strongly that strategic planning is worth the effort

• Only 13 percent agree that their top management is effectively engaged in all aspects of developing strategy

• Of those companies that hew to the traditional annual calendar for planning, strategy development is accorded a mere nine weeks each year.